Budgets are monetary reflections of planned activities, and represent the financial framework in which the organization operates. The Center’s budgets are highly significant tools for financial planning, monitoring and control. It is therefore crucial that Center Management, the Projects, and the Finance and Administrative Section are involved in the development and maintenance of budgets. As the budget will be implemented by project staff, it is important that project managers, division directors and officers are directly involved in the preparation and monitoring of and reporting the budget.
The preparation of annual budgets shall commence at least three (3) months before the end of the Calendar/Fiscal Year. Annual budgets shall be presented for approval by the BOT one (1) month before the start of the Calendar Year.
Budgets shall be reviewed every six (6) months and changes, if any, shall be recommended and proposed. Major changes shall be approved by the BOT.
The Operating Expense Budget (OEB) is part of the annual budget and is established on a calendar year/fiscal year basis. It covers the general running of the Center, including its core functions and will generally be funded from Core funds. The OEB comprises mainly of staff remunerations and general office operating expenses.
Based on local requirements, in order for the Center to avail of certain tax benefits, it has to limit its administrative expenses to 30% of the total donations and income for the taxable year. This should be taken into consideration in the preparation of the OEB and the actual expenses shall likewise be monitored closely on a monthly basis to ensure that the Center complies with this requirement.
The head of the FAS is responsible for preparation of the OEB and in ensuring that expenditures remain within the approved appropriations and are incurred for the purposes for which they were approved. The head of FAS monitors the use of OEB and decides on the disbursements to be made including the allocation of operating expenses to specific projects or grants.
The annual OEB must not run into deficit unless approved by the Executive Director, income must therefore be monitored closely, and cost saving measures initiated, should the income forecast be lower than the initial budget. A detailed report analyzing the progress of the OEB is produced by FAS and reported to the Executive Director on a monthly basis. Additional information on the status of the budget can be sought at any time.
The OEB shall use the following standard expense accounts, among others:
· Staff remunerations and benefits
· Professional fees
· Rental and utilities
· Transportation and travel
· Office supplies and production costs
· Miscellaneous
For reporting purposes, OEB is reallocated to the different projects or grants based on a reasonable allocation rate.
Individual project budgets shall be prepared covering the entire duration of the project which may be longer than the annual budget period. The project budget covering period of the annual budget shall be prepared, derived from the total project budget. Project budget comprises mainly of professional fees, travel and transportation expenses, workshop, expendable equipment, supplies and production costs, and allocated overhead costs.
As a policy, a minimum of 15% of the Project revenues should be budgeted as a general fund to cover administrative expenses.
Project budgets shall be prepared in the currency of the agreement and in USD. FAS shall maintain the individual project budgets separately as well as a consolidated budget for all projects.
The Executive Director, in consultation with the Division Heads, shall be responsible for the preparation of project budgets. Finance shall be responsible for the consolidation of the overall budget and in ensuring the accuracy, reasonableness and consistency of budget items to the business plan.
Project budgets shall also use the standard expense accounts.
Project Officers responsible for budgets shall closely monitor the budgets in order to detect potential problems and to take the necessary actions to ensure the smooth financial operation of the project.
In order to assist the project officers in budget management, a fund status report is generated by FAS on a monthly basis. The report includes detailed expenditures for the month, a detailed list of the unliquidated obligations, a detailed list of advances, as well as comments and questions from FAS. Detailed information can also be viewed electronically at any time through the reporting facility of the financial system, or requested from the FAS finance team as required.
There are three main issues that should be given priority when monitoring budgets;
· The overall budget frame must not be overspent.
· The project’s cash balance must always be positive.
· Budget lines should not be negative.
In addition, special attention should be given to possible variations when the donor agreement is in a value other than USD. This is also a concern if significant budget items are based on estimates in other currencies.
Contingencies should not be used until towards the end of the project. Their early use needs to be justified by the Project Officer or Division Head.
All Projects shall be reviewed and approved by the Executive Director however projects with budget of more than US$15,000 shall be submitted to the Board for review as follows:
(i) more than US$15,000.00 and less than US$500,000.00, on a no-objection basis, and
(ii) equal to or more than US$500,000.00, for Board approval.
The detailed project budget is prepared from the Project Budget Drafting Form (see Annex 39) which specifies inputs such as personnel, activities and facilities needed for each year. The costs of the inputs are calculated and recorded on the Project Budget Drafting Form following the Center’s costing principles and procedures as discussed below.
Project inputs must always be budgeted in USD. If major elements of the budget are developed based on other currencies, the budget needs to be revisited regularly in order to monitor the effect of possible currency fluctuations.
To calculate input costs over the life of the project, inflation should be taken into consideration and added to the assessed cost of inputs for subsequent years. Inflation can normally be calculated at 5% per year. Advice may be sought from FAS on other possible approaches.
For details regarding costing of consultancies and other services and standard equipment, consultation with FAS personnel or Procurement team may be sought.
The contingency line in the budget provides a safety net for, inter alia, fluctuations in currency which may affect the project, especially as the donor and the related currency are usually not known at the proposal stage. A full 10% of the total project cost should be budgeted for contingency, subject to consultations with the donor.
Overhead cost covering the cost of the Center in providing administrative services for executing the project (e.g., mobilizing inputs, monitoring and reporting), shall be added equivalent to a minimum of 15% of the total project costs including contingency. This rate shall be updated on a regular basis based on reasonable and validated assumptions.
The budget must be developed for the entire duration of the project, divided into each year of implementation. The total project budget shall reconcile with the approved budget (see Section 14.2).
A detailed breakdown of the main budget lines covering individual activities shall be required for budget monitoring and reporting purposes.
Budget Revisions may be required if there are significant changes in project activity or changes in the cost estimates. The revisions should ideally be initiated before the various budget lines are over spent. A proposed budget revision should be carefully prepared and documented to ensure that the justification for the proposed revision is in line with the objectives and activities of the project, the information provided is complete, and that the figures and additions are correct. The donor agreement should be consulted in order to clarify if donor approval is required prior to a budget revision.
All budgeted revisions must be approved by Head of FAS and Executive Director after the following procedures have been followed. Revisions involving Project Budgets shall also require the approval of the Donor.
The Project Division is responsible for initiating budget revisions when necessary and for clarifying donor information requirements as regards budget revisions. The project officer should complete a Project Budget Revision Form (see Annex 40). Budget revision involving significant change to the project allocations or phasing of expenditure should be discussed with and approved by the Executive Director. Revisions involving major changes to the overall budget or scope of the project require the approval of the Board of Trustees. A major change is a change in the budget or scope of the project by at least 25%.
Any increase or decrease in the project total budget requires written approval from the donor.
Once a budget revision is complete and the revision form approved, the Project Officer submits the Revision Form to the Finance team for processing into the Center’s Accounting system.
The FAS Finance Team will check the details of the revision and, after entry into the system, send a Project Fund Status Report (see Annex 41) to the Project Officer within one week of receiving the revision.
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